Travelers’ Profit Plunges; Higher Cat Losses, Reduced Underwriting Gains to Blame

April 20, 2017 by Nikhil Subba and Sruthi Shankar

Property and casualty insurer Travelers Cos Inc reported an 11 percent fall in quarterly profit hurt by higher catastrophe losses and lower underwriting gains.

The company also authorized a $5 billion share buyback program.

Wind and hail storms in several regions of the United States, as well as a winter storm in the eastern part of the country resulted in higher catastrophe losses during the quarter.

Net income fell to $617 million, or $2.17 per share, in the first quarter ended March 31, from $691 million, or $2.30 per share, a year earlier.

On a core basis, the company earned $2.16 per share.

Total revenue rose 3.8 percent to $6.94 billion.

However, net investment income rose 12 percent to $610 million, reflecting higher interest rates.

December and March saw the latest hikes in interest rates by the U.S. Federal Reserve. A 0.25 percentage point uptick in each case, the hikes marked only the second and third raise in seven years, after being kept near zero.

Travelers invests a lot of its insurance premiums in investment grade bonds, which helped the company come out of the financial crisis in a good shape.

Gains from underwriting, before tax, halved to $211 million.

Pre-tax catastrophe losses, net of reinsurance, rose to $347 million from $318 million.

The underlying combined ratio, the percentage of premium revenue Travelers pays out in claims, rose to 91.7 percent from 90 percent.

A ratio below 100 percent means an insurer earns more in premiums than it pays out in claims.

Net written premiums rose 5.3 percent to $6.50 billion.

St. Paul, Minnesota-based Travelers, the only property and casualty insurer in the Dow Jones Industrial Average, is often considered a bellwether for the sector.

American International Group Inc, with whom it competes for the title of the biggest U.S. P&C insurer, reports first-quarter results on May 3.

Through Wednesday’s close, Travelers stock had risen 1.7 percent so far this year.